Tags: facebook | earnings | growth | spending

Facebook CEO Mark Zuckerberg Spends Although Growth Is Slowing

Wednesday, 28 January 2015 05:53 PM

Facebook Inc. reported slowing revenue growth in the fourth quarter, as Chief Executive Officer Mark Zuckerberg delivered on his promise to step up spending at the world’s largest social network.

Zuckerberg, who has said that 2015 will be an investment year, is boosting spending to expand internationally, hire more and invest in new initiatives. That hit Facebook’s profits on Wednesday, with the Menlo Park, California-based company reporting an operating margin of 29 percent in the fourth quarter, compared with 44 percent a year earlier.

Sales totaled $3.85 billion, topping the average analysts’ prediction of $3.77 billion, according to data compiled by Bloomberg. That was up 49 percent from a year earlier, slower than the 63 percent growth in the fourth quarter of 2013. Expenses soared 87 percent to $2.72 billion.

Spending will jump by 55 percent to 70 percent in 2015, Facebook said on a conference call Wednesday. The company has paid billions to acquire companies including mobile-messaging service WhatsApp Inc. and virtual-reality company Oculus VR Inc. to attract users as Internet trends change rapidly. Yet Facebook’s revenue from the two platforms remains negligible.

“I think the market was looking for a much bigger beat,” Daniel Ernst, an analyst at Hudson Square Research, said in an e-mail.

Facebook shares slipped in extended trading, after closing at $76.24 in New York. The stock climbed 43 percent last year, compared with an 11 percent gain in the Standard & Poor’s 500 Index.

Facebook’s Evolution

Zuckerberg said in the call that building out new products and profiting off them will take time.

“Doing this is going to take a lot of effort over the coming years, and Facebook is going to have to evolve,” the CEO said.

Net income rose to $701 million in the fourth quarter, up 34 percent from $523 million a year ago. Profit excluding some items was 54 cents a share, compared with 48 cents projected on average by analysts.

Facebook user growth also slowed, with the company reporting 1.39 billion users, up 3 percent from 1.35 billion in the prior quarter.

Expenses were driven in part by a 29 percent jump in research and development spending and a 16 percent increase in sales and marketing expenses. The cost of revenue and general expenses were mostly flat in the last three months of 2014.

Tough Comparison

Facebook Chief Financial Officer David Wehner said in October that the company’s fourth-quarter revenue growth would face a tough comparison to a year earlier. That’s because the last quarter of 2013 was the first holiday season where Facebook rolled out ads in members’ News Feeds on a large scale, which helped spur results at the time.

On Wednesday, Wehner said on the conference call that Facebook is spending “from a position of strength.”

Even with the slowdown, Facebook has growth avenues to exploit, said James Cakmak, an analyst at Moness, Crespi, Hardt & Co.

“You may be seeing some deceleration on the core platform but you’re virtually in day one when it comes to everything else,” he said.

Facebook’s revenue increase in the quarter was driven by the mobile-advertising business, which accounted for 69 percent of total sales, up from 66 percent in the third quarter. The company is now increasingly selling promotions on mobile applications and sites across the Web, complete with new technology to track individuals’ responses to the ads no matter what device they’re using.

Currency Impact

Currency swings bit into results. Excluding the impact of foreign exchange rates, revenue would have increased by 53 percent, Facebook said.

While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than 77 percent of Standard & Poor’s 500 Index members have still beaten analysts’ estimates so far this earnings season, according to data compiled by Bloomberg.

Zuckerberg last year laid out how his company is going to make money over time. That included building out the ad business over the next three years, focusing especially on video. Within five years, the company would have figured out how to make large businesses out of photo-sharing app Instagram and messaging apps WhatsApp and Facebook Messenger. In 10 years, Zuckerberg has said he wants to have connected the remainder of the world’s population to the Internet, with the company likely focused on artificial intelligence and virtual reality.

One Billion

In December, Instagram said it has 300 million users, more than that of Twitter Inc. Earlier this month, WhatsApp said it has 700 million, closer to the 1 billion mark that Zuckerberg has said will be the trigger to start trying to profit off of it.

For now, Facebook is expanding the ways it can make money off of Facebook users, no matter where on the Web they are.

The company has an ad network called Atlas that lets marketers get data on how often individuals saw their ads and what gadget they used, while an audience network lets them serve ads to mobile apps other than Facebook.

The company has been heavily selling its video advertising, after improving the technology and acquiring startup LiveRail to help it serve video ads outside the social network.

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Facebook Inc. reported slowing revenue growth in the fourth quarter, as Chief Executive Officer Mark Zuckerberg delivered on his promise to step up spending at the world's largest social network.
facebook, earnings, growth, spending
Wednesday, 28 January 2015 05:53 PM
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